Path 2

Path 2

Adieu, Tiny Lawsuits

January 27, 2004

The cause of the Lingua Franca freelancers continues to gain momentum at the U.S. Bankruptcy Court in Manhattan—where it is evolving into a standoff between the Honorable Prudence Carter Beatty and bankruptcy attorney Robert Geltzer.

Geltzer is the court-appointed trustee for University Business LLC, the company that owned now defunct Lingua Franca and University Business magazines and that filed for bankruptcy in April 2002. By law, the trustee is responsible for recovering assets and distributing them equitably among the parties who claim they are owed money. At present these include printers, paper suppliers, and consultants, as well as the company’s principal partners: Jeffrey Kittay, son of the late garment industry tycoon Sol Kittay; his mother, Frieda Kittay Goldsmith, whose second husband was also an investor-philanthropist; and millionaire hedge fund manager S. Donald Sussman. In legal parlance, the partners are known as “insiders.”

It is standard practice for a bankruptcy trustee to try to recover payments through lawsuits known as preference actions. A preferential payment is one that was made in the three months before a company went out of business, to an unsecured creditor, to the detriment of other creditors. But it is not standard to file preference actions against individual freelance employees, for payments as low as $1,000, $3,377, and $4,500. These so-called tiny lawsuits are frowned upon in the bankruptcy world, and a bill is pending in Congress that would make them illegal.

While Geltzer continues to play the villain, bluffing and bullying defendants behind the scenes, the Lingua Franca freelancers are pinning their hopes on Judge Beatty, an outspoken woman who is known as “difficult,” “brilliant,” and “tough,” and who is said to keep her distance from bankruptcy lawyers at social events. The judge lacks the power to dismiss the tiny cases outright, according to legal observers, but she seems to think they are fundamentally unfair and has been signaling Geltzer that he should drop them.

Judge Beatty sent her first signal on January 6, when, after listening to pro se defendants Ron Feemster and Gavin McNett, she called the lawsuits “trashy.” She elaborated on that opinion to a near empty courtroom on January 27, telling Geltzer’s associate, “I’m not necessarily that enthused about your pursuing these preferential actions,” and citing myriad reasons why suing freelance writers might not be “a fine idea.”

A snowstorm was due at nightfall, and after the judge disposed of other matters, she turned her attention to Geltzer’s associate Mark Bruh and to Hilary Lane, an attorney at Clifford Chance who now represents several of the defendants pro bono. Aside from Kay Murray of the Authors Guild, the only spectator was this reporter, who turned on a tape recorder only to have it confiscated by the courtroom deputy.

Bruh is a young, goateed man who functions as Geltzer’s proxy. As soon as he identified himself, the judge scolded him for insisting that a defendant’s attorney drive from Massachusetts to New York that day, no matter what. “Was that a nice thing to do?” the judge asked. Then she wanted to know how much Geltzer expects to recover, and whom the money is going to. She zoomed in on the first three people named as unsecured creditors on the bankruptcy petition, asking, “Who is Donald Sussman? Who is Frieda Kittay Goldsmith? Who is Jeffrey Kittay?”

Bruh said he didn’t know. Perhaps not, though he did later mention a recent Village Voice story that identified Sussman, Goldsmith, and Kittay as the main partners in University Business (“Lingua Bancarupta,” January 14-20).

By calling attention to the insiders, the judge seemed to be signaling Geltzer to get on with another aspect of his job, which is to analyze all claims listed on the bankruptcy petition. If the insiders’ claims, now classified as unsecured loans, more closely resemble equity, experts say, the trustee’s job is to weed those out, so that insiders do not get paid until the other creditors—printers and paper suppliers and so on—are paid in full. Otherwise, the insiders would get the lion’s share of any recovered assets.

Time may be on Geltzer’s side, but history is not. The tiny-lawsuits strategy got a bad name as long ago as 1997, when a task force of the American Bankruptcy Institute conducted a survey of bankruptcy professionals nationwide. After hearing repeated complaints about trustees who sue for small amounts, the task force dubbed the strategy “coercive,” because it costs the defendant more to hire a lawyer than it costs to settle the case, even when the claims are of “dubious validity.” The task force’s top recommendation was to stop trustees from suing for less than $5,000. Later that year, a bankruptcy commission set up to advise Congress issued its own recommendations, also endorsing the $5,000 minimum.

Since 1997, one bankruptcy reform bill after another has arrived on Capitol Hill, only to gather dust. Let’s face it, preference payments are not a sexy issue. But lo and behold, on January 28, the House of Representatives passed a bankruptcy bill, buried inside of which is a passage that would prohibit trustees from suing for less than $5,000. An almost identical bill was passed last year, then died in the Senate. The hitch: Chuck Schumer tried to add a clause that would prevent abortion clinic protesters from using bankruptcy to duck court fines. If pro-lifers don’t stop the new bill, this could be the last time a bankrupt magazine tries to shake down freelancers for chump change.

Geltzer may have alternate strategies, one of which surfaced in the courtroom last week. When Judge Beatty suggested a Tuesday for the next hearing, Bruh objected, saying that his boss has a commitment on Tuesdays, “and on Thursdays, he is a student.”

JUDGE BEATTY: A student?

BRUH: He is pursuing a master’s of English at City University.

THE JUDGE: Is he starting a second career?

BRUH: He would like to teach.

THE JUDGE: Obviously not law.

BRUH: Your Honor, that’s not fair to the trustee.

THE JUDGE: Why would you take a degree in English if you wanted to teach law?

A silence followed, after which the judge set the next court date for a Wednesday in mid March. Observers were left to wonder what Geltzer might be reading now: “The Man of Law’s Tale”? Babbitt? I’m Losing You?